The least af­ford­able hous­ing mar­kets aren’t where you think

Bloomberg Opin­ion — Where is hous­ing least af­ford­able in the U. S.? The most cited mea­sure was long the Na­tional As­so­ci­a­tion of Real­tors’ af­ford­abil­ity in­dex, which tracks whether me­dian- in­come fam­i­lies can qual­ify for mort­gages on me­dian- priced homes.

Re­cently the NAR has shifted to an af­ford­abil­ity dis­tri­bu­tion score that mea­sures the per­cent­age of for- sale homes in an area that a fam­ily with a me­dian in­come can af­ford: In that, the Los An­ge­lesLong Beach- Ana­heim met­ro­pol­i­tan area ( yes, they group Los An­ge­les and Or­ange County to­gether for one mea­sure but not the other) was least af­ford­able as of Septem­ber, with neigh­bor­ing San Diego- Carls­bad and Ox­nard- Thou­sand Oak­sVen­tura in sec­ond and third, San Jose fourth, and San Fran­cisco and Honolulu tied for fifth.

The real es­tate site Zil­low, mean­while, has a mort­gage af­ford­abil­ity in­dex that as of Septem­ber ranked San Jose worst for af­ford­abil­ity, fol­lowed by nearby Santa Cruz and San Fran­cisco and then the Los An­ge­les area.

Hey, but what about renters? They’re in the mi­nor­ity among Amer­i­cans, with 64.4 per­cent of U. S. hous­ing units oc­cu­pied by own­ers in the third quar­ter of 2018, ac­cord­ing to the Cen­sus Bureau’s lat­est home­own­er­ship re­port. In met­ro­pol­i­tan Los An­ge­les and New York, though, renters ac­count for 52.7 per­cent and 51.2 per­cent of house­holds re­spec­tively.

They also make up more than 40 per­cent of house­holds in sev­eral other big metro ar­eas, in­clud­ing San Fran­cisco, San Jose, Or­lando, Mi­ami and San Diego. Also, renters tend to be poorer than home­own­ers are. The me­dian in­come of renter house­holds was an es­ti­mated $ 38,944 last year; for home­owner house­holds, it was $ 75,876. The peo­ple for whom hous­ing af­ford­abil­ity is the most press­ing is­sue would thus seem to be renters, not own­ers.

Zil­low does track rental af­ford­abil­ity, too. But I’m go­ing to go with the Cen­sus Bureau’s me­dian gross rent as a per­cent­age of house­hold in­come, in part be­cause it com­pares rents to renters’ in­comes, not every­body’s. This of­fers an in­ter­est­ingly dif­fer­ent per­spec­tive.

Those aren’t all ex­pen­sive Cal­i­for­nia glam­our spots. Of the four large U. S. met­ro­pol­i­tan ar­eas with the low­est me­dian house­hold in­comes, in fact, three ( New Or­leans, Tuc­son and Tampa) made it onto this chart. Mi­ami and Or­lando are also in the bot­tom 10 for in­come out of the 53 met­ro­pol­i­tan ar­eas with 1 mil­lion peo­ple or more; Rochester is 12th from the bot­tom.

I chose a cut­off of 1 mil­lion be­cause it’s a nice, round num­ber and the mar­gins of er­ror start to rise well past 1 per­cent­age point be­low that; this ex­cluded the afore­men­tioned Ox­nard, Honolulu and Santa Cruz metro ar­eas. Also, to be clear, th­ese are the rents that re­spon­dents to the 2017 Amer­i­can Com­mu­nity Sur­vey said they were pay­ing, not nec­es­sar­ily what cur­rently va­cant apart­ments in th­ese metro ar­eas are go­ing for.

No­tice­ably ab­sent from this list are the San Jose and San Fran­cisco met­ro­pol­i­tan ar­eas — the Bay Area, for short. They have the coun­try’s high­est me­dian gross rents ( met­ro­pol­i­tan Wash­ing­ton is third among large metro ar­eas, fol­lowed by San Diego and Los An­ge­les) but some­what amaz­ingly make it onto the list of the 15 most af­ford­able large met­ros. Wash­ing­ton just misses that list at 17th.

This is pos­si­ble be­cause peo­ple in metro San Fran­cisco, San Jose and Wash­ing­ton make lots of money, with me­dian house­hold in­comes of $ 117,474, $ 101,714 and $ 99,669 re­spec­tively in 2017 — the high­est among all met­ro­pol­i­tan ar­eas ( that is, not just large ones). Per­haps more sig­nif­i­cant, th­ese are also the only three met­ro­pol­i­tan ar­eas where renter house­holds made more than the $ 60,336 na­tional me­dian for all house­holds.

To be sure, rental hous­ing is even more af­ford­able in places with low rents and moder­ately growing economies like metro Louisville and metro Cincin­nati, and those mak­ing sig­nif­i­cantly less than $ 100,000 a year in the Bay Area of­ten find it im­pos­si­ble to get by. Home­less­ness is a big prob­lem there, and a study re­leased in Oc­to­ber by BuildZoom and the Terner Cen­ter for Hous­ing In­no­va­tion at the Univer­sity of Cal­i­for­nia at Berke­ley found that peo­ple with house­hold in­comes of less than $ 50,000 were flee­ing the re­gion, usu­ally for cheaper nearby lo­ca­tions such as the Sacra­mento met­ro­pol­i­tan area. Sacra­mento is on the least- af­ford­able list above, and 15 other North­ern and Cen­tral Cal­i­for­nia met­ros ( Madera, Santa Cruz, Red­ding, Visalia, Chico, Stock­ton, Santa Rosa, Fresno, Sali­nas, Napa, Santa Maria, Merced, Bak­ers­field, Vallejo and San Luis Obispo) have rent- to- in­come ra­tios high enough to make that list but fewer than a mil­lion in­hab­i­tants. To some ex­tent, the Bay Area is just ex­port­ing its af­ford­abil­ity prob­lems to its neigh­bors. I’m not say­ing the sit­u­a­tion there is any­where close to op­ti­mal.

Still, it seems bet­ter than what’s go­ing on in South­ern Cal­i­for­nia. Metro San Diego and Los An­ge­les come in fourth and fifth among large met­ros in me­dian rent and River­side- San Bernardino 11th, but me­dian house­hold in­comes in th­ese ar­eas are way be­low Bay Area lev­els at $ 76,207, $ 69,992 and $ 61,994 re­spec­tively.

Whether you’re look­ing at pur­chase prices or rents, hous­ing in South­ern Cal­i­for­nia is spec­tac­u­larly un­af­ford­able, and more of it at rea­son­able prices is des­per­ately needed. What got me scur­ry­ing down this data rab­bit hole, in fact, was a new study by the architecture firm Woods Bagot that es­ti­mates that sur­face park­ing spa­ces in Los An­ge­les County, which cur­rently cover an area 4.4 times the size of Man­hat­tan, could be re­pur­posed to house 1.5 mil­lion to 3 mil­lion peo­ple. Sounds like a plan!

Still, bet­ter jobs and higher in­comes wouldn’t hurt the re­gion, ei­ther. Job growth in the Los An­ge­les met­ro­pol­i­tan area has been slow for decades, and while per capita in­come has grown a lit­tle faster there over the past decade than in the rest of the coun­try, the sur­round­ing metro ar­eas have ac­tu­ally lost ground.

More gen­er­ally, in a lot of the cities and met­ro­pol­i­tan ar­eas where peo­ple are find­ing it hard­est to pay for hous­ing, per­sis­tent poverty seems to be a much big­ger prob­lem than high- rises full of tech work­ers. City Ob­ser­va­tory’s Joe Cor­tright laid this out in great de­tail four years ago, and his key point bears re­peat­ing:

While me­dia at­ten­tion of­ten fo­cuses on those few places that are wit­ness­ing a trans­for­ma­tion, there are two more po­tent and less men­tioned sto­ry­lines. The first is the per­sis­tence of chronic poverty. Three- quar­ters of 1970 high- poverty ur­ban neigh­bor­hoods in the U. S. are still poor to­day. The sec­ond is the spread of con­cen­trated poverty: three times as many ur­ban neigh­bor­hoods have poverty rates ex­ceed­ing 30 per­cent as was true in 1970 and the num­ber of poor peo­ple liv­ing in th­ese neigh­bor­hoods has dou­bled.

Life is ex­tremely com­pli­cated and ex­pen­sive in places like San Jose, San Fran­cisco and Seat­tle that have been trans­formed in re­cent decades by growth and wealth. For renters, though, it’s even less af­ford­able in places that haven’t.

To con­tact the au­thor of this story: Justin Fox at justin­[email protected] bloomberg. net

To con­tact the ed­i­tor re­spon­si­ble for this story: Brooke Sam­ple at bsam­[email protected] bloomberg. net

There are dif­fer­ing def­i­ni­tions of Sil­i­con Val­ley, and most of them in­clude Menlo Park and Fre­mont, which are both in the San Fran­cis- co- Oak­land metro area. But for sim­plic­ity’s sake let’s not get into that here.

Mem­phis, Ten­nessee, is the fourth.

I say “some­what” be­cause I wasn’t en­tirely sur­prised by this af­ter writ­ing a column on me­dian rents by city ear­lier this year that ranked the Sil­i­con Val­ley cities of Cu­per­tino and Sun­ny­vale among the most af­ford­able.

This is dif­fer­ent from the more widely cited na­tional me­dian house­hold in­come of $ 61,372 that the Cen­sus Bureau re­ported in Septem­ber, which is de­rived from other sur­veys, but I fig­ured I should go with the ACS num­ber to be con­sis­tent with the metro- area fig­ures. The es­ti­mates of the me­dian metro area house­hold in­comes for renters in 2017 were $ 87,282 for metro San Jose, $ 73,308 for San Fran­cisco and $ 63,861 for Wash­ing­ton.

Us­ing met­ro­pol­i­tan- area data has its lim­i­ta­tions. Cincin­nati, for ex­am­ple, has one of the high­est poverty rates rel­a­tive to the sur­round­ing metro area of any ma­jor Amer­i­can city, as Ja­son Segedy, plan­ning di­rec­tor of the city of Akron, Ohio, pointed out in an il­lu­mi­nat­ing Twit­ter thread about ur­ban/ sub­ur­ban eco­nom­ics Wed­nes­day. So there are surely a lot of peo­ple in Cincin­nati proper for whom hous­ing af­ford­abil­ity is a big is­sue.

This column does not nec­es­sar­ily re­flect the opin­ion of the ed­i­to­rial board or Bloomberg LP and its own­ers.

Justin Fox is a Bloomberg Opin­ion colum­nist cov­er­ing busi­ness. He was the ed­i­to­rial di­rec­tor of Har­vard Busi­ness Re­view and wrote for Time, For­tune and Amer­i­can Banker. He is the au­thor of “The Myth of the Ra­tio­nal Market.”